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#145528 - 01/05/04 06:18 PM ARM disclosure
BankerMama Offline
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Can an examiner actually "site" you on not having a copy of the ARM disclosure in the loan file?

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#145529 - 01/05/04 06:28 PM Re: ARM disclosure
Dan Persfull Offline
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There's nothing I'm aware of that "requires" you to have a copy in the file, or anything that requires the applicant/borrower to acknowledge they received the disclosure.

I think most banks do keep a copy in the file that has been signed by the applicant/borrower as a "best practice", but it's not a regulatory requirement.
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#145530 - 01/05/04 06:39 PM Re: ARM disclosure
juliad Offline
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The Commentary to 226.25 addresses this. We do not require actual copies in the loan file (although I prefer it), because we have examples of our programs and procedures that basically state we always give these program disclosures when a customer requests an ARM.
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#145531 - 01/05/04 07:03 PM Re: ARM disclosure
Richard Insley Offline
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You are required to retain "evidence of compliance" not "copies."
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#145532 - 01/05/04 07:28 PM Re: ARM disclosure
BankerMama Offline
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Richard, what do you mean as "evidence of compliance"?

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#145533 - 01/05/04 08:59 PM Re: ARM disclosure
rlcarey Online
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I don't mean to put words in Richard's mouth, but it usually consists of maintaining copies of the forms that have been delivered to the customers over the examination period (not a copy of each one delivered, but a copy of each type that was produced during the exam period), copies of your policies and procedures that show that delivery of the disclosures is required by bank personnel, evidence that you have sufficiently trained your personnel, and your personnel answering the examiner's question right when they ask them about disclosures and delivery of them.
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#145534 - 01/06/04 02:37 AM Re: ARM disclosure
Richard Insley Offline
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Randy- I'd be happy for you to put all those words in my mouth. "Evidence" can be procedures, automated systems, samples of standard forms, training materials and audit/QC results--anything that would lead a reasonable person to conclude that the required actions most likely occurred. Examiners can not set a standard that exceeds the regulation by insisting on signed customer receipts.
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#145535 - 01/06/04 01:31 PM Re: ARM disclosure
Rocky P Offline
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One way we have reflected "evidence of compliance" is to list all of the initial documentation provided to the customer on a "welcome" letter. Besides thanking the customer for their business, it indicates which documents are enclosed and also contains the CIP safe harbor notice and other disclosures.

This is our "proof of delivery" to the customer for documents, especially those that are not transaction specific.
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#145536 - 01/06/04 02:43 PM Re: ARM disclosure
BankerMama Offline
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Makes sense, however, the bank I now work for insists on keeping a copy of the ACTUAL disclosure..signed by the customer..in the loan file. Looks like we are shooting ourself in the foot to me!


Another question. Must the monthly payment example in the disclosure relect the term of the loan? Is it acceptable for the payment example to show for a 30 year loan but particular loan is for only 10 years or less??

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#145537 - 01/06/04 03:30 PM Re: ARM disclosure
juliad Offline
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Quote:

Another question. Must the monthly payment example in the disclosure relect the term of the loan? Is it acceptable for the payment example to show for a 30 year loan but particular loan is for only 10 years or less??




If you mean the historical example required by 226.19(b)(2)(viii), there is an alternative disclosure method in the Commentary 226.19(b)(2)(viii)(A)-5. Unless I misunderstand what I am reading, you may use a disclosure based on a 5-year term for your 10-year or less loan. A disclosure based on a 30-year term would be for loans that have a term greater than 20 years.

"Term of the loan. In calculating the payments and loan balances in the historical example, a creditor need not base the disclosures on each term to maturity or payment amortization that it offers. Instead, disclosures for ARMs may be based upon terms to maturity of payment amortizations of 5, 15, and 30 years, as follows: ARMs with terms or amortizations from over 1 year to 10 years may be based on a 5-year term or amortization; ARMS with terms or amortizations from over 10 years to 20 years may be based on a 15-year term or amortization; and ARMs with terms or amortizations over 20 years may be based on a 30-year term or amortization".

A similar allowance is made if you elect to use option B under 226.19(b)(2)(viii). The Commentary to 226.19(b)(2)(viii)(B)-2 refers you back to the section I have quoted.

It has been a while since I last looked at our ARM disclosures. There may be other references in the Commentary that go along with the above. As I recall, I found a wealth of info in the Commentary that I never knew existed the last time I reviewed ARMs.
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#145538 - 01/06/04 03:55 PM Re: ARM disclosure
BankerMama Offline
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Let's see if I can ask my question in a way that makes a little more sense:

As an alternative to the 15 year historical example we are allowed to provide a statement that the periodic payment may substantially increase or decrease along with a maximum interest rate and payment that may be incurred based on a $10,000 loan amount........... my question is does this payment HAVE to be based on the term of the loan you are doing? Can a 30 year $10,000 payment example be used on all my disclosures or must I do a different example for loans under a 20 year term?

sometimes I get hung up on details..................

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#145539 - 01/06/04 04:26 PM Re: ARM disclosure
Dan Persfull Offline
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If your loan's term is 10 years then IMO the 30 year example is not sufficient.

We have terms of 10, 20 and 30 years on our ARM programs and I have a disclosure for each of these terms (upon advice from the FDIC).

Your ARM disclosures, as I read the OSC to 226.19(b)(2)(viii)(A)(5), must either reflect the actual term of the loan or it must reflect the 5, 15, or 30 year payment example based on the various loan terms outlined in that section.
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